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Charlotte has fared better than other cities at the hands of USAirways, but it hasn’t been easy for those who’ve been laid off, furloughed or left doing the work of their former coworkers.
CEO Doug Parker says analysts predict the airline will lose $600 million this year and obviously such losses are untenable. Management will continue to explore ways to cut costs and grow revenues.
Seek Sound Advice
Our offices have seen an uptick in the number of USAirways employees seeking bankruptcy counseling, help negotiating with creditors and advice on short sales of their homes.
If you’re an employed airline employee in Charlotte, our advice is to walk a conservative financial path. Although management claims the Charlotte hub is a focus, the only sure things in life are death and taxes. These are extraordinary times for us all.
If you are laid off or furloughed, and are like 90% of Americans who are unaccustomed to budgeting, investigate a budgeting and money management course.
Get Control of Your Assets
If you have no idea how you are going to pay your mortgage and other debts in the short or long run, call our offices immediately. We will counsel you on your legal rights and, if appropriate, provide you with asset planning and protection strategies to implement while you look for another job or restructure your financial life. People too often consult us much later than they should, which limits their options.
We know how much you’re resisting calling a “bankruptcy lawyer.” The earlier you call, the more options you have to avoid bankruptcy.
Related posts:
- I don’t want to file, but should I?
- I want to file a “medical bankruptcy”
- Speaking on Business Bankruptcy
In addition to my private practice, I serve as a Chapter 7 Trustee for the United States Bankruptcy Court for the Western District of North Carolina. Few people know what this means and how this service helps my private practice clients, so here’s a primer.
What’s a bankruptcy trustee?
Chapter 7 Trustees (also known as panel trustees) are not government employees. Here in the Western District of North Carolina, they are private citizens appointed and supervised by the local United States Bankruptcy Administrator to administer bankruptcy cases under Chapter 7 of the U.S. Bankruptcy Code. Each Panel Trustee must pass a FBI background check and is required to post a bond in each case that he/she is appointed.
I’ve served as a Trustee since 1979 and in the role, I liquidate assets for the benefit of creditors where possible. Whether my private practice clients are debtors or creditors, my Trustee experience always serves them well.
The National Association of Bankruptcy Trustees describes the Trustee role as follows:
Trustees review the debtor’s petition and schedules after they have been filed with the Court. At times they may request additional information from the debtor to review in conjunction with the debtor’s petition and schedules. They are careful to review the debtor’s exemption schedules to determine whether the debtor has properly followed the state or federal exemption laws.
The Panel Trustee serves as the hearing officer for the 341 hearing. Each debtor is sworn and examined by the Panel Trustee and the creditors are allowed the opportunity to ask questions which is moderated by the Panel Trustee. After the Section 341 hearing, the Panel Trustee will object to exemptions that have been improperly claimed.
The Panel Trustee will seek turnover of assets held by the debtor or other parties and will arrange for their eventual sale. The Panel Trustee may also seek to recover assets conveyed by the debtor prior to the filing of the bankruptcy. The Panel Trustee will cause a notice to be given to all creditors to file their claims with the Bankruptcy Court. The Panel Trustee will then pay creditors according to the priority level they have been given by the Trustee. After all funds held by the Panel Trustee are distributed, the Trustee will seek approval of the Court to close the bankruptcy case.
Educating Bankruptcy Attorneys
Many of us on the Chapter 7 bankruptcy trustees panel for the Western District of North Carolina participated in a seminar of tips and practice pointers for our fellow bankruptcy practitioners. The topics include:
- When it’s best not to file a bankruptcy case — some of the special situations in which, despite a mountain of debt, the last thing a debtor would want to do is invite a bankruptcy trustee to sort through his or her financial affairs
- Complicated issues facing bankruptcy counsel when a potential Chapter 7 debtor owes income taxes
Remember, when selecting a bankruptcy attorney, you’re putting your financial past (and sometimes future) in their hands. One of the reasons clients choose our firm to represent them is the exposure I’ve had to a variety of cases as a Trustee.
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My friend and fellow bankruptcy attorney Susanne Robicsek and I recently spoke to a group of local small business owners gathered at Central Piedmont Community College in Charlotte, North Carolina. In this tough economy business owners are wise to acquaint themselves with the legal options they may need to employ if their companies hit the shoals. It was a pleasure spending an afternoon trying to keep people OUT of my law offices.
Separate the business from its owners
One of the most important things we discussed at CPCC is the distinction between the liabilities and assets of the business, on the one hand, and the liabilities and assets of the business owners, on the other. The very first thing a client must do when sitting down with me or any attorney is list business liabilities that the owner has personally guaranteed. Small business owners frequently make the mistake of putting everything in the business name but backing everything with a personal guarantee, making it very difficult to split the client from the business.
This fusion of business and personal entities shows up in the language clients use. They say “I did this” instead of “the company did that.” I call this the “I factor.” People with a high I factor have a difficult time making the right business decisions. A business is a business. It exists to pay its owners, not the other way around.
Restructuring a business
Susanne and I also presented information on factors to consider in determining whether a financially troubled business is worth trying to save. For example, a good attorney will determine what level of debt the business can afford carry given its revenues, then see if there is a way to restructure the debt and save the company.
I often see a business owner in trouble about two or three years after startup when the SBA loans can’t be serviced. When I start talking to these business owners it amazes me that most don’t know their break-even point.
Another warning signal that a business needs to be restructured is an owner that isn’t funding a reasonable compensation to themselves. I have to ask,”Why are you in business? To live the nightmare?”
It’s strange to me that people go to the bank with an elaborate business plan so they can get a loan, then they stop paying attention. You must compare your actuals to your plans. If you don’t you ‘ll be completely overwhelmed.
I tell people in financial trouble to send me a business plan week by week, then month by month not because I need to see it for my sake, but because they need to instill discipline in themselves and get my objective feedback. If you’re going to get out of financial difficulty, you’ve got to be realistic. A business plan helps instill discipline. A business plan also gets business owners out in their businesses taking action instead of sitting behind their desks fretting.
People are able to talk about sex and STDs all day long, but not money
If the attendees take half my advice I’ll never have to see them in my office. If any of them do I’ll acknowledge their bravery. Bravery? Yes, walking through my door means you’ve admitted you need help.
When you walk through my door you know you’ve got an honest and objective person, not a yes-man. Will my advice always be right? Heck no — just ask my ex-wives. But I will tell you what I see about your situation and what my experience has shown to be effective for others in your shoes.
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When you’ve been around as long as I have, you call things as you see them. Maybe that’s why reporters call me to comment on high-profile bankruptcy cases.
Charlotte’s 210 Trade files Chapter 7 Bankruptcy
In case you missed my 2-second TV debut last week on WSOC, here’s a link to what I said about the 210 Trade condominium bankruptcy filing when the reporter asked if buyers were likely to be refunded their earnest money.
Lenders Pulling Plugs
I’ve commented twice on lenders foreclosing on commercial loans at the first sign of difficulty instead of taking a wait-and-see approach.
Last week the story in question surrounded condo developer Ray “Rip” Farris III, who sued his lender, First Horizon Home Loans, and parent company, First Tennessee Bank National Association. Mr Farris claimed that the companies acted in bad faith when they stopped paying on a $24.4 million loan.
My quote, “You’re free to sign away your life, and you’re free to reap the benefits,” made it into the paper, but it seems a bit obscure.
The quote referred to lending agreements that contain all sorts of terms that give lenders an open door to call loans and push harsh terms on borrowers. Either-do-this-or-we-call-your-loan type terms. Of course, the guarantees make the individuals liable. We are seeing some nutty stuff from banks that have decided to get out of land loans and don’t care who they run over to do it.
I think the reporter cleaned up my original statement, which was probably more like,
“We have freedom of contract. That means that we have freedom to make a great deal for ourselves, and we have freedom to make damn fools of ourselves.”
More on the story: Sometimes, depending on the facts of the case, I advise clients not to sue their lenders because such cases are difficult to win in NC, where banks hold great sway with the legislature. NC laws favor financial institutions, which means pursuing a case against one can cost millions and result in nothing more than wasted money. I had a builder, who is going through foreclosures and trying his best to salvage what he can with work outs, tell me recently that when this is over he would have a large number of new friends but that none of them would be bankers.
Cornelius Foreclosure
In case you missed this story, a huge project, Augustalee, in Cornelius, NC, was foreclosed by its lenders because it hadn’t met key project milestones. NOT because the developers had missed payments.
Foreclosing when the Loans are Current
Since I originally wrote about the story, The Observer has reported updates on the story, including the most recent news that the original developer has been replaced after a foreclosure auction. The mezzanine lender said the foreclosure resulted from “the borrowers’ failure to satisfy certain milestones and inability to raise additional capital needed to complete the project, including the financing of certain infrastructure and required offsite improvements.”
The developer countered in a lawsuit that the mezzanine lender promised to lend $23.5 million but paid only $19.5 million. Shortly after the fund failed to pay the remaining $4 million, the developers’ senior lender started to foreclose.
If you have business loans, I recommend reviewing them with a qualified attorney. Your legal counsel will identify possible triggers in the agreements that lenders could use to call your loans or foreclose. Lenders have legal departments to guide them in protecting their interests. You need a lawyer to help you protect yours.
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Unfortunately, lawyers have a reputation for being “all about the money.” Few people realize the pro bono (free) work so many of us do for those unable to pay. This week my partner Rick Mitchell and I will be speaking (for FREE) in Charlotte on business bankruptcy for NC LEAP , the premier provider of pro bono business and transactional law services for entrepreneurs operating in the state’s low-wealth communities, or employing persons who live in such areas.
Bankruptcy Options and Alternatives
If your business is suffering in this Great Recession, bankruptcy is always an option, along with other alternatives. We’ll discuss business bankruptcy and give you tools to help decide if you should just close the business down. Many business owners don’t factor in the tax impacts to their decisions — we’ll cover those as well. Think of the workshop as a free bankruptcy counseling session.
Details on the class: October 14, 2009 – 1-3 p.m. – NC LEAP Business in Hardship in Charlotte, NC.
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USAToday reported on the impact of loan modifications on credit scores this week. Selected paragraphs:
A growing number of cash-strapped consumers are working with lenders to modify their mortgages so they can stay in their homes. But these modifications could wreck consumers’ credit.
A modification is typically a change in loan terms. Usually, the interest rate is reduced temporarily to lower monthly payments. The amount of principal owed isn’t changed, and no debt is forgiven.
But such arrangements can damage a credit score because of the way lenders report loan modifications to credit bureaus. Under Credit Data Industry Association rules, loan modifications are reported as “partial payments.” This could result in “a serious hit to your score,” Ulzheimer says. “The argument we keep getting is that if you modify your loan, it means you can’t afford it,” he says. “That’s not true. If you modify a loan, that could be a … decision to lower your payment.”
Borrowers who have done a loan modification may not know that their score has been hurt until they’re rejected for a loan or get a notice that their credit card account has been closed, he says.
Before entering into a modification with any lender, including a mortgage company, consult a qualified counselor who can review the documents and advise you on the best course of action.
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This week’s USAToday ran a helpful story analyzing changes in credit scoring in the face of developments in this Great Recession. Highlights:
- Lenders are closing credit card accounts and lowering credit limits for millions of consumers and business owners who have never paid late. Some lenders are reporting mortgage modifications in a way that dings consumers’ scores, dealing a setback to those trying to get their finances on track.
- More lenders also are adopting a new scoring model the financial industry believes is better at predicting risk — but that could move consumers’ scores more than 20 points up or down.
- Lenders say they’re taking steps to reduce their risk in a difficult economy. Some admit they’re concerned about the impact of their actions on consumers’ credit scores but say they have no control over how scores are determined. But consumer advocates say regulators and Congress need to address lender actions that are unintentionally hurting credit scores. They say that as underwriting standards tighten, even a small change in a credit score could affect what rate consumers get on a loan — if they get one at all. Some analysts also say the fact that consumers’ credit scores can fall even if they’ve never missed a payment or exceeded their credit limits raises questions about the score’s usefulness.
If you are struggling with your debts, call us for a Credit Card Debt Counseling session before agreeing to a debt settlement proposed by your lenders.
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In this week’s Charlotte Observer story about tough times in the commercial construction sector, we learned that liens filed in Mecklenburg County against general contractors by their subs spiked by about 70% in the last two years. Experts say they will continue rising.
The article sparked a lively discussion in the “comments” section online.
What’s a sub to do?
Before you let the lack of cash flow drive you to close your business, consult with an attorney about your options. If filing a mechanic’s lien makes sense in your situation, the lien will attach to the property and structures and prevent the property owner from obtaining a clear title.
Subcontractors have a short period of time after they’ve stopped working to file a lien. They then must enforce that lien by filing a lawsuit within a second short time frame in order to force a foreclosure or the lien expires.
This is not legal work that a subcontractor should try to perform alone. Our firm has significant expertise in construction law.
If you are a business owner who has not been paid for goods or services rendered, contact an attorney immediately. In our experience, time does not work in favor of the party to whom money is owed.
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A USA Today story analyzed trends in mortgage modifications, finding that some homeowners who were hoping for lower payments are facing modifications that rolled late fees, back taxes or other costs into the principal.
End result? What started out as a difficult payment is now an impossible one. The story noted that this is one reason many reworked mortgages are sliding back into default.
“Of loans modified from Jan. 1, 2008, through March 31, 2009, monthly payments increased on 27% and were left unchanged on an additional 27.5%, according to a recent report by banking regulators. Many modified mortgages fall delinquent — 25% to 40%, depending on the type of mortgage — often because of homeowners’ loss of income or additional outstanding debt, according to a report last month by CreditSights, a financial research firm.”
If you are considering a loan modification, seek a debt settlement counseling session with an attorney who represents your interests. We are trained to identify all the possible outcomes of the modification your lender or mortgage company proposes.
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Mortgage Delinquencies
The Hope Now Alliance, comprised of counselors, mortgage companies, investors and other mortgage market participants, reported that there were more than 3 million mortgage loans 60 or more days delinquent through the end of July. Foreclosure starts were above 283,000 thousand in July, though completions totaled only 89,000, according to the data.
Auto Loan Delinquencies
The Chicago Tribune reported that the rate of late auto loan payments rose and attributed the cause to the shrinking labor market. The story also quoted an expert from TransUnion’s financial services group that average auto debt nationally decreased slightly. The decline is believed to represent, in part, a tightening of credit, along with a reluctance among consumers to take on new debt amid the recession.
Student Loans
U.S. Education Department show that federal student borrowing for the 2008-09 academic year grew about 25 percent over the previous year. Two-thirds of college students currently borrow to pay for college, and their average debt load is $23,186 by the time they graduate, according to an analysis of the government’s National Postsecondary Student Aid Study. The total borrowing limit for dependent undergraduates who take out federal Stafford loans—the most popular federal aid program—grew to $31,000 this past school year from $23,000.
Consumer Bankruptcy
The 119,874 consumer bankruptcy filings in August represented a 24 percent increase over last year’s monthly total, according to the American Bankruptcy Institute, relying on data from the National Bankruptcy Research Center. Although an increase over the previous year, the August 2009 consumer filings represented a 5 percent decrease from the July 2009 total of 126,434. Chapter 13 bankruptcy filings constituted 28.3 percent of all consumer cases in August, unchanged from the July rate.
If you are among the millions of people suffering a financial setback, call our offices to schedule a bankruptcy counseling or credit counseling session. Do not rely on creditors to give you accurate information about your legal rights and options.
Related posts:
- I want to file a “medical bankruptcy”
- Who’s filing for bankruptcy now?
- Charlotte Bankruptcy in the Headlines
